Posted by David Oliver on 2/26/2016 to Business Law
IncSmart California (Small Business and Startups) - California Professional Corporations are for business people who are prohibited from forming a limited liability company or a traditional corporation. Instead, people are required to incorporate as a professional corporation. Business that are required to be professional corporations include are regulated by the state and must have a state license. Realtors, dentists, certified public accountants, doctors, veterinarians, lawyers, optometrists, marriage and family therapists, psychiatrists, and psychologists.
Officers, directors and shareholders of a professional corporation must be licensed to conduct the professional activity. The corporate name of a professional corporation must contain the words, "Professional Corporation", or the abbreviations of "Prof. Corp., or "P.C." or "PC". The original director and stock holder must have a certificate to practice the state regulated profession.
How Tax Savings Works
Save on Social Security Taxes. 15% per year.
Pay yourself a reasonable salary, $12,000. Pay Social Security on this portion of the income.
Pay the rest out of your Professional Corporation in Dividends. No Social Security or Medicare taxes on dividends.
Must have a license to be the Professional Corporation such as a Realtor License.
The IRS will require the corporation to pay you a realistic salary for your work as an employee of the corporation. That pay should be reported on W2 and will be subject to the normal employer and employee FICA taxes.
By David Oliver
Starting a Business in California - California Corporation - California LLC
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